Nephila & Credit Suisse syndicates show attractiveness Lloyd’s: Aon

17th August 2016 - Author: Artemis

Alternative reinsurance capital continues to enter the Lloyd’s of London marketplace via Special Purpose and full syndicates, according to Aon Benfield. Underlined by the establishment of syndicates from ILS players Nephila and Credit Suisse, which provided a combined capacity of £212 million in 2016. Reinsurance broker Aon Benfield has commented on the inflow of alternative reinsurance capital within the specialist Lloyd’s of London re/insurance market, highlighting the continued attraction the Special Purpose Syndicate (SPS) structure offers third-party capital providers in accessing global insurance risk via the Lloyd’s market.

“The SPS structure continues to be a popular vehicle for third party capital. Nephila and Credit Suisse, the two largest managers of alternative capital dedicated to insurance risk, have gone further and established their own syndicates, with combined capacity of £212 million in 2016,” said Aon Benfield in its latest Lloyd’s Update report.

According to the report, Nephila Capital’s Syndicate 2357 that’s managed by Asta, provided capacity of £122 million, while Credit Suisse’s Syndicate 1856, which is managed by Barbican, had capacity of £90 million in 2016, combining to total £212 million.

The solid performance of the Nephila syndicate and the establishment of the Credit Suisse platform highlights the increased comfort the Lloyd’s marketplace has with ILS capital and structures, something Lloyd’s has committed to embracing in recent times.

“The UK government has been working with the London Market Group (LMG) to create a tax and regulatory infrastructure to enable insurance-linked securities (ILS) business to thrive in the UK.

“Lloyd’s was planning to launch an insurance index alongside this initiative in mid-2016, but has decided to delay it to concentrate on the implications of the ‘Brexit’ vote and ongoing demands of challenging market conditions. Ultimately, the intention is to leverage the market’s extensive loss ratio history in a way that will give brokers and underwriters new derivative-type options for hedging risk, while offering alternative capital providers access to specialty business,” said Aon Benfield.

ILS capacity continues to grow its presence and expand its global footprint, and it seems that as comfort and understanding of the ILS market and its features continues within the Lloyd’s marketplace, more and more alternative reinsurance capital will look to access Lloyd’s.

Away from ILS capital, Aon Benfield notes that insurer and reinsurer interest in establishing a Lloyd’s platform remains strong, and in 2016 the marketplace began with 98 active syndicates, with underwriting capacity of £27.7 billion, up 6% on the previous year.

Market headwinds continue to hinder profitability and growth remains challenging. However, gross written premiums increased by 1.1% in 2015 to £26.7 billion, despite an average renewal rate reduction of 4.6%, says Aon Benfield.

The Lloyd’s market reported a combined ratio of 90% in 2015, higher than the 88.4% reported in 2014 and which takes the five-year average to 92.3%.

The Lloyd’s market appears set on cementing its place as global hub for insurance and reinsurance business, underlined by the establishment of new platforms in Dubai and India and the ongoing work to facilitate ILS operations in the market.

Market conditions remain challenging for all markets across the world, so it’s promising to see that Lloyd’s is looking to expand and diversify its capabilities in order to remain relevant and secure its global position in the risk transfer industry.